Reforestation Tax Incentives Under the American Jobs Creation Act of 2004

The American Jobs Creation Act of 2004 made significant changes in the reforestation tax incentives available to private forest owners. Owners can now deduct outright reforestation costs up to $10,000 per year for each qualifying timber property and amortize any additional amount over 8 tax years. To assess the financial benefit the new incentives provide to forest owners, the authors developed spreadsheets that calculate after-tax Bare Land Value (BLV) for a representative southern pine management plan under three tax situations: no reforestation incentives, the incentives under previous law, and the incentives under the current law. They found that compared to no tax incentive, the current law chiefly benefits owners with high non-timber income, increasing BLV by an amount equivalent to a reforestation cost share of roughly 25 to 30% as opposed to 5 to 15% for owners with low or median income. Compared to previous law, the current law chiefly benefits owners of large forest holdings, increasing BLV by an amount equivalent to a reforestation cost share of roughly 10 to 20%. For owners of small forest holdings, however, BLV decreased by an amount equivalent to a 5 to 10% increase in reforestation costs. These findings are significant as Congress likely intended that the new incentives continue to benefit primarly “small woodland owners” with modest incomes and forest holdings.